Interest on Borrowed capital

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Shamii Sharma (Querist)
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25 September 2010 Respected Seniors,

I have a query regarding interest on borrowed capital which have been taken by x company for purchase of equity shares of y company and y company had a piece of land which y company wants to develope for that purpose a another loan is taken but not by y company it is taken by x company. Now there is a interest on this loan for 12 lacs is this amount of interest can be set carried forwrd even there is no business in x company and if carried forward than can it be set off with the income of y company who sale the land after develope the land.

kindly clear the matter as soon as possible.

your faithfully

venkatraman shrinivas

venkatraman shrinivas (Expert)
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27 September 2010 Mr.Sharma from what you convey it is deduced that X company had made two borrowings one for acquiring shares in y company and then another loan for developing the site belonging to y company. You want to know whether the interest that had accrued/become payable on the second borrowing viz. for development of the site belonging to y company can be carried forward for future set off, since x company does not derive any business income as of now.

The question of set off of interest paid by any entity would arise if and if only the borrowed sum is incidental or wholly and exclusively laid out for the purpose of its business. It is evident from your information that x has no source to have it set off. Hence there is no question of set off or carry forward. Conversely, if x is the owner of the site and in future income is admitted, the interest during last 5 years of the construction can be amortized in equal instalments from the year from which income is admitted. At the same time, it should bed the owner of the property.